FTC: 1 in 5 Americans has a mistake in credit report

Findings indicate mistakes push millions into higher-cost loans

One of every five American consumers has an error on his or
her credit report and 5 percent of us endure errors so serious that we likely
are being overcharged for credit card debts, auto loans, insurance policies and
other financial obligations, according to a comprehensive study issued Monday by
federal regulators.

The report by the Federal Trade
Commission, completed in December but just released, found
that 21 percent of a representative group of American consumers discovered a
"confirmed material error" in at least one of the credit reports issued by the
Big Three credit reporting bureaus -- Experian, Equifax and TransUnion. A
"confirmed material error" involves information that, when corrected, changed
the consumer's credit report.

The study also reported that 5.2 percent of the
representative group found and, with the assistance of the report's
researchers, successfully challenged a mistake so serious that it had lowered
their credit score substantially enough to burden them with higher interest rates.

The agencies track the credit histories of about 200 million
Americans. If the FTC's
findings are accurate, that means
some 40 million Americans have a mistake on one of their credit reports, and 10
million are potentially overpaying as a result.

'Eye-opening numbers'
"These are eye-opening numbers for American consumers,"
Howard Shelanski, director of the FTC's
Bureau of Economics, said in a prepared statement. "The results of this first
of a kind study make it clear that consumers should check their credit reports
regularly. If they don't, they are potentially putting their pocketbooks at
risk."

Consumer advocates agreed, both with the significance of the
study and the path of action that should be taken by wise consumers.

"Consumers should
be concerned about mistakes and omissions in credit reports that lead to
excessive cost of credit," said Walter Dartland, a former deputy attorney
general of Florida and executive director of the Consumer Federation of the
Southeast, a nonprofit consumer advocacy group. "What is necessary is a plan to
reduce these errors."

Representatives of
the credit reporting industry adopted a somewhat different perspective. They
said the FTC's
report showed that most credit reports are accurate, most errors are
insignificant, and credit card companies, banks and other lenders -- rather than
the data collecting firms -- were primarily responsible for most of the errors
that were found.

Industry: Impact is 'small'
"While the overall number of errors and their impact on
consumers' creditworthiness is small, maintaining accurate credit reporting data is
essential to both lenders and credit bureaus," Stuart Pratt, president of the
Consumer Data Industry Association, which represents 170 consumer data
collection firms, said in a written statement. "We will continue to work with
lenders and others who provide data to the credit bureaus to make sure the
percentage of material errors impacting consumers is even lower."

Though studies on credit reports' accuracy have been conducted over the years by the FTC,
industry groups and consumer rights organizations, hard facts concerning the
accuracy of credit reports have been difficult to obtain. The industry has said
that a fraction of 1 percent of all credit report had errors; a widely quoted
consumer advocacy report found that more than half had some sort of error.

The FTC
said the report issued Monday was more comprehensive than any conducted in the
past. Agency officials said this was the first national study "designed to
engage all the primary groups that participate in the credit reporting and
scoring process," including consumers, lenders, data furnishers, FICO and
the national credit reporting agencies.

In essence, this
latest report came down in the middle, finding a significant volume of
errors that affect many consumers, but also expressing its findings in
carefully nuanced terms.

The results of this first
of a kind study make it clear that consumers should check their credit reports
regularly. If they don't, they are potentially putting their pocketbooks at
risk.

--
Howard Shealanski
FTC
Bureau of Economics

"Overall, the results of the study suggest that while a notable
number of consumers may have inaccuracies on their credit reports (21 percent
of the participants and 13 percent of the credit reports have inaccuracies),
the impact of these errors on credit scores is generally modest (an average of
an 11.8 point increase in score) and often there is no change in the credit
score of the report (63 percent of disputed reports do not change score)," the
report said. "For a few consumers, however, the impact is large."

Broken dispute
system
The errors can be difficult
to correct and resolve.

"This is a real dilemma
because consumers are [sometimes] faced with receiving a different version of
their credit reports than is reported to creditors and, even when an error is found,
the [credit] bureaus seem to be unwilling to address the consumer's concerns
and there appears to be no recourse," said David Jones, president of the Association
of Independent Consumer Credit Counseling Agencies, which represents 32 nonprofit credit
counseling companies.

In developing their
latest study, the FTC's
researchers enlisted a demographic cross-section of 1,001 American consumers. Together,
the research associates and the consumers reviewed 2,968 credit reports.

Among the findings of the 370-page report:

Twenty-six percent of
the studied consumers found one or more "potential material errors" in at least
one of their credit reports. A "potential material error" involves information
that could affect your credit score.

Nearly 13 percent of the studied group experienced
a change in their FICO credit scores as a result of successfully challenging an
error in one or more of their credit reports.

People with relatively low FICO credit scores at
the start were most likely to see some improvement after checking their credit
reports.

Most of the discovered and
confirmed "material" errors involved mistakes in the reporting of consumer
finance accounts or collections transactions.

Perhaps most significantly, 52 of the 1,001
participants (5.2 percent) "experienced a change in score such that their
credit risk tier decreased and therefore [they] may be more likely to be
offered a lower auto loan interest rate," according to the study.

A combined 6.3 percent of those with affected
credit scores saw those scores increase by one to 19 points after they
challenged reporting errors, though 2.1 percent saw a 25 to 49 point increase and
2.3 percent experienced a 50 to 99 point increase.

Demographically, men and women were equally
likely to successfully report a credit score-changing error.

Consumers between the ages of 51 and 60 were
most likely to find confirmed credit report errors and enjoy credit score
changes, followed closely by those between 41 and 50 and those over 60.

Educational attainment appears to have a strong
bearing, with consumers with no more than a high school diploma far more
likely to be victimized by credit report errors than those with college
educations.

Consumers: Check your reports
Though opinions about the significance of the
findings differed, everyone agreed that consumers
should protect their interests by checking their credit reports and swiftly
reporting any errors.

"All consumers should be aware that checking credit
reports every year is fundamental to accuracy," said Pratt, the trade group's
spokesman.

"Your credit
report has information about your finances and your bill-paying history, so
it's important to make sure it's accurate," said Charles Harwood, acting
director of the FTC's
Bureau of Consumer Protection. "The good news for consumers is that credit
reports are free through AnnualCreditReport.com, and if you find an error, you can work
with the credit reporting company to fix it."

The federal Fair Credit Reporting Act guarantees consumers
the right to dispute and remove credit report errors, but CreditCards.com has found
that the fixes often are not that easy. Last fall, its investigation, "Why the credit report dispute system is broken,"
examined how the credit agencies' automated system backfires on many
consumers.

"The dispute
process has absolutely no value whatsoever for consumers," Leonard
Bennett, a consumer lawyer in Newport News, Va., who has repeatedly testified
before Congress about the credit report dispute system, told CreditCards.com
for that report.

Sunday, the CBS-TV
show "60 Minutes" also reported on what it called a broken system for resolving
credit report disputes. In response, Pratt denied that the system was broken and
again urged consumers to check their credit reports every year for what he
called rare errors.

"Federal courts
across the nation have repeatedly found that the credit reporting industry
dispute process not only follows the letter of the law but its spirit, as well,"
Pratt said. "The system is successful."

Experian also expressed faith in the credit bureaus' accuracy. "The report shows that the vast majority of errors on credit reports have no bearing on credit scores, for example outdated information on a consumer's phone number or address," the bureau said in a statement posted Monday. "About 2.2 percent of reports contained an identified error that shifted consumers to a more favorable lending tier when the data furnisher corrected the inaccuracy. That said, Experian is not satisfied with this result and we continue to work toward ensuring credit reports are 100 percent accurate."

So, what should credit card customers and other American
consumers do?

"Consumers should
do everything they can with the bureau that is showing the errors and also
petition the Consumer Financial Protection Bureau," said Jones, the consumer advocate. "It
will take time to resolve this, because the bureaus are in denial."

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Three most recent Credit scores, credit reports stories:

Improve your spouse’s credit score: 5 tips – Many marriages include one spouse with good credit and another with bad or no credit. Here's how "good credit" spouse can lift "bad credit" - without driving each other nuts ...

Contact

Related Sites

ADVERTISER DISCLOSURE
CreditCards.com is an independent, advertising-supported comparison service. The offers that appear on this site
are from companies from which CreditCards.com receives compensation. This compensation may impact how and where
products appear on this site, including, for example, the order in which they appear within listing categories.
Other factors, such as our proprietary website's rules and the likelihood of applicants' credit approval also
impact how and where products appear on the site. CreditCards.com does not include the entire universe of available
financial or credit offers.

CARDMATCH™ is a free, secure service that will not affect your credit score. Simply provide your basic information, and view offers that match your credit profile within seconds.

Advertiser Disclosure

CreditCards.com is an independent, advertising-supported comparison service. The offers that appear on this site are from companies from which CreditCards.com receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within listing categories. Other factors, such as our own proprietary website rules and the likelihood of applicants' credit approval also impact how and where products appear on this site. CreditCards.com does not include the entire universe of available financial or credit offers.